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Santos takes control of Eastern Star Gas

Oil and gas producer Santos aims to control NSW’s largest coal seam gas reserve with a $739 million all-share bid for explorer Eastern Star Gas.

‘‘This transaction represents the next major step in Santos’ eastern Australia gas strategy and positions the company to meet the expected increase in demand for natural gas from both domestic power generation and export LNG (liquefied natural gas) markets,’’ Santos chief executive David Knox said in a statement.

The bid comes two years after Santos began its accumulation of a 21 per stake in Eastern Star Gas.

The addition of the project to Santos’ assets would make it the holder of the largest natural gas reserves in NSW, the company said.

Eastern Star Gas’ main operation is the Narrabri gas exploration project in northern NSW and Santos already already holds a 35 per cent stake in the project.

As part of the deal, Santos proposes to sell a 20 per cent interest in the newly acquired assets to TRUenergy for $284 million, and operate them under a joint venture arrangement.

The TRUenergy transactions will be finalised two days after Santos’ acquisition of Eastern Star Gas is completed. Santos already operates six exploration licences in the Gunnedah Basin.

Santos is to offer 0.06803 of its shares for each Eastern Star Gas share in a bid that has been unanimously recommended to shareholders by Eastern Star Gas directors.

Based on the closing price of Santos shares on Friday, the offer equates to 90 cents per Eastern Star Gas share.

Eastern Gas shares soared today, gaining 24.5 cents, or 41.2 per cent, to 84 cents. Santos shares fell by 49 cents, or 3.7 per cent, to $12.74, decreasing the value of the bid to around $712 million for the 79 per cent of Eastern Star Gas that Santos does not already down.

Santos hopes to have the takeover completed by late October, pending shareholder and court approval.In a presentation to investors, Mr Knox said the location of the Gunnedah Basin made it suitable to be the next gas supply hub on the east coast, after Queensland’s Bowen Basin.

However, the NSW coal seam gas industry is facing public opposition, particularly in relation to the construction of infrastructure connecting the Gunnedah Basin to a port.

Mr Knox said Santos was committed to developing the coal seam gas industry without affecting the region’s agricultural production.